Mortgages blow overshadows HBOS profits hike

Halifax Bank of Scotland came under pressure today as the group’s faltering share of the new mortgage market overshadowed a 13% increase in profits.

The UK’s biggest lender saw its share of new mortgages fall by more than half to 8% after offering uncompetitive rates for existing customers coming to the end of fixed deals earlier this year.

The decline lowered profits at the firm’s retail business by 8% to £1.04bn (€1,54bn) – despite overall group profits of £2.96bn (€4.39bn) in the first half after a better performance from its corporate, insurance and investment divisions.

HBOS’s overall impairment losses for bad debt also jumped 11% to £963m (€1,4bn).

The company’s share price fell by as much as 5% today – even after the firm announced a 23% dividend increase – as the wider market was hit by fresh fears over the US mortgage market.

Hargreaves Lansdown analyst Keith Bowman said: “Given the current situation, the provisions for bad loans increase and the slump in net mortgage lending share have taken centre stage.”

HBOS chief executive Andy Hornby said the bank’s share of the new mortgage market had risen back to between 15% and 20% in May and June after more competitive pricing was put in place, with trading expected to remain at these levels during the second half of the year.

The mortgage problems undermined other advances for HBOS’s retail banking operation, which opened 900,000 savings accounts and increased its share of new current accounts to 24%.

But the bank joined rivals HSBC and Lloyds TSB in shelling out for refunded overdraft charges to customers in the six month period. HBOS said the £79m (€117m) payout mostly related to fees charged in previous years.

The charges are the subject of a legal action by the Office of Fair Trading against eight UK banks.

The company’s insurance and investments division posted a 10% increase in underlying pre-tax profits to £316m (€469m), although profits in general insurance fell by a third to £107m (€158m) following June’s floods in northern England.

The extreme weather conditions sparked £60m (€89m) in extra claims, but the bank added that the most recent floods in southern and central England would prompt a “modestly higher” level of claims in the second half of the year.

HBOS said corporate profits had soared by 54% to £1.24bn (€1.84bn), although this was driven by a sharp increase in sales of investments to £543m (€805m), compared with just £78m (€115m) the previous year.

Despite the lukewarm reception for the results, HBOS cheered its nearly 70,000 staff today with the award of nearly £80m (€118m) in free shares.

The hand-out on August 7 will bring the total amount of free shares awarded by HBOS to £218m (€323m) since the lender began the scheme in 2005.